Australian Dollar recedes despite hawkish RBA , US mid-tier data

AUD/USD continues trading close to dangerous levels near 0.6600.
Aussie Dollar could benefit from the hawkish tone surrounding the RBA.
The USD saw some gains due to strong sentiment data from the University of Michigan.

The AUD/USD declined by 0.21% to 0.6620 in Friday's session despite the Reserve Bank of Australia's (RBA) hawkish policy outlook. The decline was primarily attributed to the appreciation of the US Dollar amid less-dovish sentiment surrounding the Federal Reserve (Fed) and strong University of Michigan (UoM) sentiment data, which overshadowed soft Durable Goods figures.

However, the Aussie Dollar could benefit from the RBA's hawkish tone in the coming days.

Daily digest market movers: Australian Dollar declines on US data

AUD weakened versus USD primarily due to the release of strong UoM data and Durable Goods lower than expected decline.
In that sense, Durable Goods Orders in the US declined by 0.8% in September, slightly better than market expectations of a 1% decline.
UoM’s Consumer Sentiment index rose to 70.5 in October, beating expectations.
The strong US data might prompt the Fed to take a more hawkish stance and table the two consensus cuts for November and December.
In the meantime, the RBA isn’t showing signs of being completely open to start cutting with markets only betting on 50% chances of a cut in 2024 which could eventually benefit the AUD.

AUD/USD technical outlook: AUD/USD bearish momentum dominates, support at 0.6600

The AUD/USD pair extended its losses on Friday. The Relative Strength Index (RSI) fell into the oversold area, with a value of 34, and is exhibiting a mildly declining slope, suggesting that selling pressure is rising. The Moving Average Convergence Divergence (MACD) histogram is red and rising, indicating that bearish momentum is increasing.

Overall, the technical outlook for the AUD/USD pair is bearish. The decline in the RSI and the rising MACD histogram suggest that selling pressure is dominating the market. However, it is important to note that the pair is trading near support at 0.6600 and may experience a bounce if it manages to hold above this level.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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